Economic Forecasts Usually Wrong
January 2, 2002
While administration budget forecasts tend to be more optimistic than most private ones, all forecasters are just about equally wrong. For every time one manages to hit a key number right on the mark, there are many more occasions when they were off by a country mile.
On January 2, 2001, the Wall Street Journal published the predictions of 54 well-known economic forecasters, most of whom work for private banks.
- Only five had even a single quarter of negative growth in their forecasts, all the rest predicting positive growth for the whole year (see figure).
- Only two forecasters, A. Gary Shilling and Tracy Herrick, had the quarters right, showing negative growth in the third and fourth quarters.
- However, Shilling was predicting negative growth continuously since the 3rd quarter of 2000, and had growth declining much more sharply than was the case.
These forecasters weren't any more accurate six months later, when the Journal asked them for an updated forecast in July.
- Even though the recession had already begun in March, as the National Bureau of Economic Research later determined, only five predicted a negative 3rd quarter, and only two saw negative growth in the 3rd and 4th quarters.
- Herrick of Jeffries and Co. appears to have been closest to the mark for the year.
Foreign economists are no better: a recent survey by the International Monetary Fund found that "the record of failure to predict recessions is virtually unblemished." Most forecasters are not really paid to be accurate at all. According to a study by the Federal Reserve Bank of New York, forecasters are compensated more for getting publicity for their companies than for being accurate.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, December 31, 2001.
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